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Monthly Technical and Precious Metals Positioning Report - Gold - March 2020

30 March 2020

To view this report in PDF format, please click here.
 

Gold – In Brief

A remarkable month. The sudden increase in European COVD-19 cases and deaths, particular in Italy. (see Johns Hopkins CSSE for the latest data.) and a wave of lock-downs across the globe propelled equities downwards, and helped push crude lower, forcing gold down as markets drove for cash. Prices have moved so much and so quickly that this report is in its fourth iteration. I can’t keep re-writing it to keep up with ongoing changes, so accept that some charts will look positively historic by the time you read this.

Technical Analysis Graph 1
US Fed Funds 0.00 %
US Retail Sales -0.50 % m/m
US Empire State Manufacturing Index -21.50
ISM Manufacturing Prices 45.90
China Industrial production y/y -13.50 %
German ZEW Economic Sentiment -49.50.
Eurozone Industrial production in December down -2.10 % m/m.
Bank of England Monetary Policy Committee voted unanimously (9-0) for GBP 645 Billion QE

Money and Interest Rates
The Fed dropped to zero mid-March, with the BOE dropping to 0.100 pct., with the ECB launching a EUR 750 billion bond and commercial paper buying program that enables the bank to support short term debt issuance by Eurozone corporations.Banks are seeing a degree of flexibility from regulators regarding non-performing loans, to avoid a rapid and counter-cyclical reduction in capital buffers.

Quick Overview of Managed Money Positioning in Gold
Managed money length declined by about 5.57 million FTozs in the week of 10th-17th March, and by 11.33 million Tozs since the 18th of Feb peak, a mighty 41 % exodus. Since the 17th, total Open Interest has shrunk by about 19,500 lots, or 1.95 million FTozs, which looks like long liquidation on Wednesday and Thursday, primarily. 

Technical Analysis Graph 2
Gold Positioning and Volume-Weighted Average Pricing
A wave of long liquidation from late February onwards at good levels (on an aggregate basis, February arrivals got long at around US$1,575, and left at around US$1,642) Longs haven’t been this shy since June 2019, nine months ago, and that makes me feel relatively optimistic about gold, particularly given where gold’s descent stopped on the weekly cloud chart. 

Technical Analysis Graph 3

Weekly Ichimoku Cloud Chart
The huge break-down in gold found support at the Weekly Cloud top, from where it staged a decent rebound. That support level is now at US$1,460. This chart is still bullish. The rebound blew through resistance at the Fibonacci levels, but so far is failing to close above the key 61.80 % retracement around US$1,608 after spiking up to the 78.60 % retracement and dropping back. Trend line support comes in at US$1,397.

Technical Analysis Graph 4
Daily Ichimoku Cloud Chart
The daily chart has reverted back to bullish. Nearby support at US$1,582.

Support around US$1,445, the November lows

Technical Analysis Graph 5
Daily Point and Figure log 1 %
The market traded up between the two highest targets on the chart below, where the market lost momentum and rolled back lower, as so often happens. The sudden drawdown took many by surprise. Given the speed of the market’s recovery, the very large downside target below is likely to be ‘knocked out’ soon as the price exceeds the previous column. 

Technical Analysis Graph 6
Gold Hourly Point and Figure – Medium Term
Positive price action – US$1,646 almost achieved, look for resistance near past highs in the US$1,696-1,704 band.

Technical Analysis Graph 7
Price Targets via Point and Figure – Short Term
Given massive spreads in the spot market it makes sense to widen the box size out to US$5. Targets to fresh highs. Expect support above US$1,540, roughly the level of the magenta rectangle.

Technical Analysis Graph 8
The Inflation-linked Bond Yield & the US Yield Curve
A huge -snap-back in yields. The gold is diverging somewhat from the yield spread.

Technical Analysis Graph 9
Gold Prices and the Yield on the April 2028 US Inflation-Linked Bond
The relationship still holds nicely. Regressing gold prices on the yield shows that the inflation-adjusted yield can explain about 75 % of gold’s moves.

Technical Analysis Graph 10
Gold-Silver Ratio
Well and truly outside of Kansas City limits on this one too. Increasing the box size to filter out some of the noise suggests a 109-118 range with a target towards 101. The Daily Chart implies a long-term return to 87. Silver’s shorter-term outlook has been driven by concerns over a severe demand shock arising from Coronavirus.

Technical Analysis Graph 11
Equities - the SPX
Brutal moves, with a moment when most of the gains of the last half decade wiped out. However, standing well back its interesting that the current price (c. 2,475) has recovered to sit on a trend line extending back to the April 2009 low. 

Technical Analysis Graph 12
SPX Hourly Chart with Targets
The SPX has reached all of the recently created downside targets, after making a low of 2,192. (The recent volatility means all the downside targets were created after February the 27th, so very little heads-up.) This allows for the possibility of a rebound, possibly to 2,900. A break lower would target 2,018 basis more medium-term observations.

Technical Analysis Graph 13
The Dollar – DXY 
The 102 level target was exceeded in the dash for safety.

Targets on the Daily Log point and figure to 102.00 on the DXY. Support at 98.80 and 98.10 at the Weekly Turning line and Weekly Cloud top respectively. Current price action suggests that the index will weaken toward 100.40 and 98. 

Technical Analysis Graph 14
AUD Weekly Cloud
After (almost) touching the 0.545 target on the Daily log Point and Figure chart, there is scope for a slight rebound in the Aussie. Noncommercial shorts reached the ‘shortest’ level in twenty years in the week ending March the 3rd, accordingly upward pressure on the currency may be a feature as shorts look for levels to take profit. As it is, shorts have reduced by 42 % or 4.88 billion AUD over the fourteen days between the 3rd and the 17th of March.

Technical Analysis Graph 15
The AUD Hourly Point and Figure
Showing price action from mid-March onwards, this excerpt from the Hourly Point and figure indicates the chances of a recovery back to 0.62 and 0.651 within a longer-term bearish structure. 

Technical Analysis Graph 16
Where to from Here?
The impact of coronavirus on the real economy, the reappearance of QE, unlimited bond-buying from the Fed, along with rampant rate-cutting all support gold in the long run, however with huge and destabilising flows across assets in March, gold also had huge volatility, and tested the resolve of bulls.
Technical Analysis Graph 17Nick
Disclaimer
The information contained herein is based on data obtained from sources believed by ABC Bullion to be reliable. However, such information has not been verified by, ABC Bullion, and ABC Bullion does not make any representations or take any responsibility as to its accuracy. Any statements of a non-factual nature constitute only current opinions, which are subject to change without notice. ABC Bullion (and/or its affiliates) may have positions in commodities referred to herein, and may hereafter liquidate such positions. Neither the information in this report, nor any opinion expressed, shall be construed to be, or constitute, a recommendation or an offer to buy or sell, or a solicitation of an offer to buy or sell, any commodities or other financial products mentioned herein.